The New York Times recently reported that President Donald Trump had largely zero income taxes for the past two decades and only paid $ 750 in 2016 and 2017. This shows how a wealthy and unscrupulous business owner can benefit from broken tax laws and weak tax enforcement.
Since taking office, President Trump's administration has only made tax laws worse. Here are six ways government tax policies – specifically the Tax Cuts and Employment Act 2017 (TCJA) – can further tighten tax laws for the benefit of businesses and the rich and powerful.
1. The Trump administration's most important legislative achievement is an extremely regressive tax cut
The tax bill that President Trump signed in 2017 has drastically reduced taxes for high net worth individuals and companies. It lowered the highest individual income tax rate, introduced a special new deduction mainly benefiting wealthy business owners, relieved tax on large inheritances, and lowered corporate taxes significantly. Taken together, the changes that this law has made will drastically reduce tax burdens on the very rich and bring little benefit to the working and middle classes. In 2020, the average household will receive a 1 percent tax cut of $ 50,000 – 77 times the average tax cut for the bottom 80 percent of Americans.
2. The TCJA opened new loopholes for the rich
Although the 2017 tax bill is dubbed "tax reform," it has actually opened up huge new loopholes for the rich to exploit. One of the biggest loopholes in the bill is what is known as the pass-through loophole, which gives owners of businesses such as S-companies or LLCs a 20 percent discount on business income and opens up a range of new gaming opportunities. The deduction effectively lowered the top tax rate on most business incomes of high-income individuals by 10 percent – from 39.6 percent before 2017 to 29.6 percent. By far the biggest beneficiaries of this provision are the richest 1 percent of Americans, who will see nearly two-thirds of the windfall. In addition, in the final hours before the law was passed, lawmakers added a last minute provision to widen the passage gap, especially for property owners.
3. The TCJA cut corporate taxes by a third
At the heart of the 2017 Tax Act is a big cut for businesses. The law lowered the corporate tax rate from 35 percent to 21 percent. And unlike the tax cuts for individuals, most of which will expire in 2026 and 2027, most of the cuts for businesses are permanent. Immediately after the law went into effect, corporate tax revenues fell off a cliff. Before the Tax Act 2017 went into effect, the Congressional Budget Office predicted that companies would pay taxes of around $ 668 billion in 2018 and 2019. However, after the law was passed, companies paid only $ 435 billion during that period – a decrease of 35 percent. The main argument from advocates for the bill was that companies would reinvest this $ 233 billion tax cut in new equipment, facilities and their workforce. Instead, corporate investment declined as companies took advantage of those profits and returned them to their wealthy shareholders through share buybacks and dividends.
4. Wealthy goods received large tax cuts in the TCJA
The 2017 tax law heavily stipulated even the richest goods. Before the law, due to the generous exemption, only 0.2 percent of the estates of the deceased paid an inheritance tax. The 2017 law doubled the exemption, allowing more than $ 22 million of a couple's assets to be transferred to heirs tax-free. This means that the richest goods each pay more than $ 4 million less than they would under the tax code before TCJA. The estate tax cuts are estimated to cost $ 83 billion in revenue over 10 years, and the number of wealthy estates subject to tax annually will be reduced by more than two-thirds – from 5,500 to just 1,900 extremely wealthy heirs.
5. If the Trump administration manages to overturn the ACA, the rich would receive more tax cuts while more than 20 million people would lose health insurance
The Trump administration actively supports a lawsuit pending in the US Supreme Court seeking to overturn the Affordable Care Act (ACA) in its entirety. If successful, the administration would likely eliminate the taxes that funded the law's extension of health coverage, including a tax on the capital gains and income of high-income individuals and a tax on pharmaceutical companies. The Tax Policy Center estimates that more than half of the tax cuts resulting from the abolition of the ACA would go to taxpayers in the top 1 percent and more than 86 percent to the top quintile. The biggest beneficiaries of this change would be America's billionaires, who only got richer over the course of the year: The richest 100 billionaires have seen their wealth grow by more than $ 400 billion since early 2020. If the ACA investment tax income is waived, each of them would receive a massive return on their accrued profits in 2020 – reducing their collective tax burden by more than $ 16 billion. Working-class and middle-class Americans, on the other hand, would see negligible tax cuts, while those currently receiving tax credits to afford health insurance would face much higher premiums, if any insurance was available to them at all. (The loss of tax credits is not shown in Figure 3.)
6. Trump's new withholding tax proposal would give 99 percent of its benefits to the top 1 percent
President Trump recently made a proposal to lower the highest capital gains rate – a tax paid on the profit made on the sale of a capital asset such as stocks, bonds, or real estate – from 20 percent to 15 percent. Capital gains taxes are already given preferential treatment over normal income from wages or salaries. According to IRS data from 2018, only the richest 0.8 percent of Americans had capital gains or dividends in the current 20 percent tax bracket. Lowering the maximum rate on these assets would therefore benefit almost exclusively the rich. The Institute for Taxes and Economic Policy estimates that a full 99 percent of the tax cut would go to the richest 1 percent.
The handlers in the top 1 percent would get the most benefit from either of these two measures. According to an analysis by the Center for American Progress based on 2017 tax data, the highest income was 0.001 when the highest capital gain rate was lowered to 15 percent and net investment tax was lifted as part of the Trump administration's efforts to repeal the ACA Americans – those who earn more than $ 63.4 million a year – would receive nearly $ 14 billion in profit: an average tax cut of more than $ 9.6 million per person.
The Trump administration's tax policy has significantly reduced revenue and passed tax breaks to the richest households. Instead of real tax reform that would fill in the loopholes and gamble to ensure that big corporations and the rich pay their fair share, the Trump administration's tax policies cut tax rates and cut new loopholes that the rich could exploit. Reversing this harmful tax policy should be a top priority for Congress and the next administration.
Galen Hendricks is an economic policy researcher at the Center for American Progress.